Resource Allocation (12) Flashcards
What is profit in investment terms
Profit measures the return to risk when making an investment
What is the price mechanism
The price mechanism is the means by which decisions of consumers and businesses interact to determine the allocation of resources.
What are the price functions
Signalling function
Rationing function
Incentive function
What is signalling function
Prices perform a signalling function – i.e. they adjust to demonstrate where resources are required.
If prices are rising because of high demand from consumers, this is a signal to suppliers to expand production to meet the higher demand.
What is Rationing function
Prices ration scarce resources when demand overtakes supply, so when demand overtakes supply prices rise and only the people how are willing to buy.
What is incentive function
Prices act as an incentive to buyers and sellers
If prices are low it encourages buyers to purchase more goods and sellers to supply more goods Vice versa.
How does changes in one market affect another market
Changes in market conditionsfor one product can have significant effects on the demand or supply in other markets, when products relate. For example, changes in the price of petroleum are likely to influence motor car sales.
Give 2024 Data Uk
CPI Inflation: 3.2%
Interest rates 5.25%
Real GDP growth 0.1% 2023
Pound to Dollar exchange rate £1 - $1.24
What is meant by productivity
how much output can be produced with a given set of inputs.
What is deadweight welfare loss
It measures the loss in producer & Consumer surplus due to an inefficient level of production and pricing
